Canada Pension Plan, Shapoorji Pallonji Tie Up For Real Estate Investments In India

Mumbai: Canada Pension Plan Investment Board (CPPIB) and real estate developer Shapoorji Pallonji Group on Thursday announced an alliance to acquire foreign direct investment (FDI)-compliant office buildings in large Indian cities.

CPPIB will own 80% of the venture with an initial equity commitment of $200 million, said a statement released by the partners.

The venture will target FDI-compliant office buildings that are leased out and offer good scope for returns from asset management. It will be supported locally by the Shapoorji Pallonji Investment Advisors team led by Rajesh Agarwal.

CPPIB was advised by Vikram Gandhi, founder of VSG Capital Advisors.

“We are delighted to be partnering with Shapoorji Pallonji to launch our first real estate venture in India focusing on stabilized office properties in major urban centres,” said Mark Wiseman, president and chief executive officer, CPPIB.

“India is a key growth market for CPPIB and, as a long-term investor, we believe there are attractive investment opportunities across various sectors. We look forward to working alongside Shapoorji Pallonji, a well-aligned and experienced operator and developer in India,” Wiseman said.

Investment bankers say pension funds can make up for a shortage of fund raising avenues to companies at a time when the initial public offering (IPO) market is largely comatose and equity and currency markets volatile in the face of subdued economic growth.

In a recent interview with Mint, Kaku Nakhate, the India head of Bank of America Merrill Lynch said, “The capital market should be developed in order to lure different pockets of finance. For instance, pension funds from world over should be able to come in.” Nakhate said pension funds can provide long-term finance as well.

On 21 October, Mint had reported that Canadian pension funds had expressed keen interest in investing in the proposed infrastructure trust funds modelled on the real estate investment trusts (REITs) in Singapore to open a new refinancing facility for India’s fund-starved infrastructure sector.

Calls For Greater Transparency In Canadian Real Estate Market

Despite the fact that Canada is attracting more than its fair share of real estate investors, both domestic and international, you may be astounded to learn that there is no public data available on investment ownership of Canadian real estate. Yes, the Canadian authorities are not aware of the split between domestic and overseas investors and are therefore unable to see what is really driving the market.

A number of prominent figures have now stepped forward to voice their concerns at an apparent lack of transparency. When you bear in mind that international investors are now having a major impact upon relatively large real estate markets, London is one which springs to mind, this is something which the Canadian authorities need to address sooner rather than later.

Identifying trends in the Canadian property market
Those who follow the Canadian property market will be well aware that prices have pushed higher over the last few years due to a lack of supply, a relatively strong economy, well-managed government budget and demand from overseas investors. While we are not able to specify the exact levels of overseas investment across the Canadian real estate market, it is significant and it is moving markets.
Quote from PropertyForum.com : “It will come as no surprise to those who follow the worldwide real estate market to learn that Canadian investors seemingly cannot get enough of US commercial real estate.”
Only recently we covered an article on Canadian real estate investors looking towards the US with funding in excess of $20 billion pouring out of Canadian real estate investor coffers into the US market over the last 12 months. The US market is transparent, domestic and overseas investor figures are available so why is Canada not operating on a similar basis?

Rightly or wrongly there have been suspicions for many years now that overseas investors in London have been looking for a place to “park their money” with so far unsubstantiated claims of potential money-laundering issues. This is in a market which is highly transparent and is able to monitor both domestic and overseas investment at a glance. If there are potential money-laundering issues under this transparent and strict regime then what about the Canadian situation?

Nobody is for one moment suggesting there are widespread money-laundering issues within the Canadian real estate market but the fact that there are no public figures available differentiating between domestic and overseas investors leaves room for doubt. When you also bear in mind that property markets, and indeed any investment market, are based upon confidence in the regime running the market, could we be storing up problems for the future?

Conclusion

It seems highly likely that the Canadian authorities will eventually look towards a system which will differentiate between domestic and overseas investors. It would be very useful if this information was made public so that particular trends and influences can be monitored on an ongoing basis. Whether we see such a move this year, next year or in 10 years’ time it seems almost inevitable that ongoing pressure will force the government’s hand.

As a side note, this is a system which has worked very well for the authorities in the UK who are now able to differentiate between overseas and domestic investors in the London property market and potentially look to introduce specific taxes. Now, would the Canadian government turn down a new tax income stream from overseas investors?

Canadian Home Prices In For A Soft Landing, Overvalued By 26 Per Cent: Fitch

TORONTO - Sky high prices in the Canadian real estate market won’t be climbing for much longer, says a report by global rating agency Fitch Ratings.

The agency forecasted Tuesday that home prices across the country are in for a “soft landing” and will either flatten out or slightly decrease over the next five years. It estimates that current prices are overvalued by up to 26 per cent in some regions and could fall by as much as 10 per cent in some places.

Fitch Ratings said the Canadian economy will be exposed when this happens, as many homebuyers have financially stretched themselves to borrow for their home purchase and will be in for a shock once interest rates start to climb.

It noted a downturn in the housing sector will also impact jobs, as companies have scrambled to build new homes and push construction to record levels in recent years.

"With a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy," it warned in the 12-page report.

Fitch Ratings said home prices have surged more than 130 per cent since 2001, outpacing income growth by more than 80 per cent.

Despite the anticipated decline, the agency said there are several factors that will lessen the impact on the Canadian economy, including the overall low levels of unemployment and proactive government policy.

In July 2012, federal Finance Minister Jim Flaherty introduced tighter rules for mortgage lenders and borrowers — a change that industry says accounted for a slowdown in residential property sales that began the following month and continued through the first part of 2013. The efforts were aimed at avoiding a housing crisis like the one seen in the United States.

Although the policies have been successful at moderating mortgage debt, Fitch Ratings says housing prices still continue to rise.

"Government awareness has appeared to be high, and if the proactive policies specifically targeting a soft landing are successful, then flattening growth or modest decline scenarios become increasingly likely," it said.

Meanwhile, another report released Tuesday by the Conference Board of Canada also predicted that the housing market will be shielded from a hard landing.

"A crash would require a significant negative surprise like an interest rate spike or employment collapse. Since no such shock is in the cards in Canada, a housing crash like the one in the U.S. is nowhere near a possibility," said Robin Wiebe, a senior economist at the board’s centre for municipal studies.

Its Autumn Metropolitan Housing Outlook found that stability in the housing sector is can be attributed to supply continuing to be in line with demographics.

Last week, the Canadian Real Estate Association reported that home resales dipped in October for the first time since February, which some saw as a sign that the housing market is in for a correction.

Transactions fell 3.2 per cent in October from September on a seasonally adjusted basis. But the number was also an 8.2 per cent hike compared with October 2012, when home sales dropped following a tightening of federal mortgage rules.

The association’s national home price index also rose 3.52 per cent from October 2012 and the national average price for homes sold in October was $391,820, up 8.5 per cent from a year earlier.

Toronto, Vancouver and Calgary were responsible for much of the increase in the national home price last month. If they were taken out of the equation, the average price was up 4.9 per cent rather than 8.5 per cent.

CREA also said that the hottest markets in Canada so far in 2013 have been Calgary, Edmonton and Vancouver when judged by total sales volumes, which measures both price increases and units sold. On the flip side, the coldest markets were in Quebec City, Saguenay, Que., and Halifax, all registering double-digit declines.

MBS RECAP: Bond Markets Improve On Weak Data, Friendly Fed

MBS Live: MBS Afternoon Market Summary

Fed speakers will be an ongoing theme this week as market participants refine their outlook for potential December policy changes. While we heard from several Fed members today, it was really only Dudley whose comments noticeably correlated with market movement. The opening salvo of Dudley newswires contained a slightly more optimistic stance than he usually conveys. This counteracted some of the gains that followed the weaker-than-expected NAHB Housing Market Index.

Dudley later qualified his apparent optimism, saying he anticipated that monetary policy would be accommodative for a considerable period of time due to low inflation and high unemployment. This restored the bid for bond markets--which had only wavered slightly at first. MBS and Treasuries are now coasting toward 5pm at the best levels of the day--albeit in fairly low volume.

Afternoon Reprice Alerts and Updates

Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribersthis afternoon.

3:59PM : Bond Markets At Best Levels; Some Positive Reprice Potential

We've seen scattered positive reprices so far today and the possibility remains as the day winds down. Fannie 3.5s are up 14 ticks at 101-29 and 10yr yields are down to 2.664. Volume has been light all day and the movement doesn't owe itself to any significant event or headline. As for positive reprices, we'd emphasize potential over likelihood, due primarily to the lateness in the session. We may see a few, but they're by no means guaranteed.

Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.

Matthew Graham : "http://www.mortgagenewsdaily.com/data/30-year-mortgage-rates.aspx"

Jeff Fullmer : "Does anyone know where I can get a good graph showing average mortgage rates for the past 5 to 10 years? I'm working on a presentation and I need o find one. Thanks in advance."

lhefner : "REPRICE: 1:07 PM - Quicken Loans Wholesale Better"
Ross Miller : "I got the same call"

Bryce Schetselaar : "They tried to do the same thing with me. Said that volume currently was 10% of last year at this time. With the drop in volume, their competitive advantage in pricing goes out the window due to fixed costs...economies of scale"

Edgar : "And they closed our account with 24 hours of going below a certain level (even though we were Tier 1 for years). If they waited 2-3 more days then several loans that closed would have brought us back to where we needed to be."

Bryce Schetselaar : "Yeah, they are REALLY hurting"

Edgar : "Anyone else get hit up by Provident recently about re-opening a broker relationship with them? We have not used them in 2-3 years, and they contacted us a few weeks back about doing business again. Their sales pitch? How we cost them SO much money because of 2 locked loans falling out but if we basically beg them to let us back in they'll consider re-opening the account. Isn't that nice of them? They must really be hurting if they need to go back 3 years and hit hip a small broker for biz. "

Matthew Graham : "Dudley is highly regarded as well. It would be different if it were Plosser (which it will be at 1:30). Even then, they say far more that's ignored than traded. Given what's at stake surrounding QE, such snippets become something other than 'random opining' sometimes. "

Drexel Hill Mortgage, Inc. : "right BB...the crystal ball for late 2014 and 2015...anything could still happen one way or another...but just that kind of speak all of sudden prompts DEC taper...not likely"

Brent Borcherding : "I think it speaks to the general uncertainty and unknown of the market that one individual "opining" can do so, at date. "

Michael Gillani : "It's amazing how random opining by different Fed members can sway the market as a whole on any given day."

Ted Rood : "If it shows not eligible on those two sites (and you're entering address as shown on mortgage statement), prob not harp eligible, Lynn."

Lynn ONeal : "any ideas to determine if a current wells fargo is harp eligible other than fannie and freddies site (or telling them to call wells)?"

New House Prices Fall, But Real Estate Sector Still Strong

After rising steadily since 2008, Statistics Canada’s new housing price index has flattened out in September, following on a 0.1 per cent increase in August, but a new report says that's no cause for concern as Canadian real estate development will remain strong.

New housing prices fell in Edmonton, Windsor, Ottawa and Montreal, but those decreases were offset by a 0.5 per cent jump in Calgary, which is seeing higher labour and materials prices as it recovers from floods this summer.

The flat housing prices are no cause for concern, according to the Emerging Trends in Real Estate report from Price Water house Coopers and the Urban Land Institute.

Canada’s relative economic health, especially compared to our neighbours to the south, has kept residential real estate strong, says the report, released Wednesday.

Trend to urbanization
Tighter mortgage rules and increasingly cautious banks have helped flatten condo prices, especially in North America’s hottest condo market — Toronto, the report said. But, cranes are expected to remain visible along major city skylines as projects already in the pipeline are fully built and but the trend toward urbanization keeps demand buoyant.

The trend among young Canadians to live, play and work all in the same neighbourhood is driving a boom in both condos and urban office development, says the report.

The outlook for development of all types of property – from residential to commercial – is good in Canada, according to PwC partner Lori-Ann Beausoleil.

Transit is of increasing importance to all forms of real estate development, she said.

Look for transit
“With challenging infrastructure in all major Canadian centres coupled with the urbanization trend, there will be a continued demand for retail, office and residential space in our urban centres where there is easy access to mass transit,” she said.

Redevelopment of urban areas and creation of mixed use real estate are key trends for the coming year, she said, especially in centres such as Vancouver, Calgary, Toronto and Montreal.

But the report says real estate that is far from transit, or a long way from residential areas may become underused and is less likely to be redeveloped because of a significant shift in where people want to live.

Increased automobile commute times and snarled traffic are turning people off suburban living and many Canadians are choosing condo living over the house with a yard which comes with a frustrating commute.

These include the 20-somethings, who are establishing lifelong habits of urban living, and baby boomers, who want to give up snow-shovelling and be closer to the symphony, the report said.

Changes to office market
Older commercial or suburban properties that are not close to transit may wait in limbo for redevelopment.

The office development business is changing with more demand for open layouts, shrinking space use per capita, technology impacts and demands for energy efficiency, Beausoleil advises.

She said the Canadian real estate sector is likely to remain strong for the coming year, and the U.S. market is likely to recover.

“The forecasts show that Canadian real estate players are able to both invest and attract investors. With the U.S. economy on the upswing, we are likely to see even more activity between the two countries, Beausoleil said.

“Over the last several years, Canada has been the interesting real estate story while the U.S. markets were in distress, but now, we expect that the continuing U.S. recovery will be the real story. Still, Canada’s strong market and the spending power of our consumers will continue to position us well in the international community as we head into 2014.”

Canadian Housing Bubble? 9 Signs We’re In For A Major Correction

Maybe Canada doesn’t have a housing bubble.

Maybe this time, it really is different. Maybe life expectancies have grown, and with them, people’s willingness to take on more debt. That would mean house prices could stay up higher than history would suggest.

Maybe interest rates aren’t going back up. If there is no inflationary pressure, either in Canada or in the U.S., there isn’t much reason for central banks to push interest rates back up.

Maybe we’re in for an endless housing boom. Maybe. But if history is still any guide to go by, then folks, it looks like we have one whopper of a housing bubble on our hands. Because just about every single indicator that warns economists of trouble in the housing market is now flashing red.

Investment bank Goldman Sachs and British business paper the Financial Times are the latest to throw in with the “Canada has a housing bubble” crowd. Goldman put out a report last month saying that some parts of Canada are suffering from overbuilding, and given the excess construction, a “price decline can be quite significant.”

Meanwhile, FT declared Monday that Canada’s “property sector is perched precariously at its peak.”

Here are nine of the most compelling reasons given by economists for why Canada has a housing bubble. Decide for yourself whether this is much ado about nothing, or a major warning sign for an economy in trouble.

1. House Prices Are Growing At An Unreasonable Pace
House prices in Canada have grown 20 per cent since the end of the 2008-2009 recession — and that’s when you adjust for inflation.

The compare: During this time, the U.S.’s flailing housing market saw a net decrease in prices of about 10 per cent, adjusted for inflation. Maybe a better comparison would be Australia, which, like Canada, is a commodities-heavy economy that does well when resource prices are high. Australia’s house price growth during this time has been half that of Canada’s.

2. We’ve Never Been So Indebted
Canadian household debt has hit a record high of 163 per cent of income, meaning Canadians owe $1.63 for every dollar of income. Tha’s pretty close to where the U.S. and U.K. were when their housing bubbles burst.

And Canadians seem to be going debt-crazy even outside of mortgages. According to a recent RBC survey, non-mortgage consumer debt soared 21 per cent in the past year.

3. Canada’s Gap Between House Prices And Rent Is The 2nd Largest In The World
The Economist magazine reminds readers several times a year that Canada’s housing market is among the “bubbliest.” According to its data, Canada’s housing market is overvalued by 73 per cent, compared to rental rates, when looking at long-term norms. That’s the largest gap among countries where this data is available.

4. Canada’s Gap Between House Prices and Income is the Third Worst In The Developed World
That’s according to the OECD, which released a report this summer saying Canada is “vulnerable to a risk of a price correction.” The OECD estimates that house prices are about 30 per cent higher than they should be, given what Canadians earn.

Canada is part of a small group of countries “where houses appear overvalued but prices are still rising,” the OECD said.

5. Canadian Housing Markets Are Exhibiting ‘Irrational Exuberance’
“Irrational exuberance” is the term Fed chairman Alan Greenspan coined in the mid-90s for a market that is bubbling up. (Four years later, the dot-com bubble burst and Greenspan’s warning proved prescient.)

Canada’s housing markets are also showing signs of irrational exuberance. Despite warnings from even the most optimistic market analysts that house price growth is bound to slow due to tighter mortgage rules, huge house price increases still abound in many markets.

One of the most irrational markets is Toronto, where a large drop in sales in 2012 resulted in … very little change in house prices. When the market picked up again this year (sales were up a stunning 19.5 per cent year-on-year last month), the result was … little change in house prices. This is a sign of a market that has become detached from economic fundamentals.

6. Low Mortgage Rates Are All That Are Holding Up This Market
The housing market optimists, like CIBC economist Benjamin Tal, point out that, for all the increases in house prices, affordability is still actually pretty good (or at least not much worse than normal).

They’re right, but this depends entirely on interest rates staying at current historically low levels. If interest rates go up, so do monthly payments, and affordability is out the window.

How precarious is the situation? Economist Will Dunning, who works in part for the Canadian Association of Accredited Mortgage Professionals, estimates that even a one percentage point hike in mortgage rates would be enough to sink the market.

A one-per-cent increase in Toronto would result in a decline in home sales of 15.3 per cent in Toronto, Dunning estimated recently, while prices would drop by about six per cent.

7. We’ve Never Been So Dependent On Construction Jobs
Canada’s booming housing market in the years after the 2008 economic collapse helped to hold up the economy (much of that thanks to rock-bottom interest rates), but it has also fundamentally changed the economy in ways that could prove to be bad news.

With manufacturing slowly dying as a source of jobs, construction jobs have taken over the slack. Fully 13.5 per cent of Canadian jobs are now linked somehow to construction — the highest level on records going back some four decades. Compare that to the U.S., where only 5.8 per cent of jobs are related to construction.

BMO economist Doug Porter believes this could be a sign of an “unbalanced” economy, and the risk here is that, when the construction market returns to normal (as eventually it must), there will be serious job losses.

8. In Housing, What Goes Up Does Come Down
The conventional wisdom is that house prices are something that just keep going up and up. But historical data shows this actually isn’t true. We have records of home sales in North America going back centuries, and throughout the years, average house prices have always trended back towards a level that’s about 3.5 times median income.

So if the median household income in Toronto is about $70,000, which it is, then an average house should cost $245,000, which it certainly doesn’t. The average price of a home sold in Toronto today is $539,035, a seven-per-cent increase from last year.

It’s hard to imagine Toronto house prices falling all the way back to long-term trends even with a housing bubble collapse, so it may be that, at least on this metric, things really are different this time. Perhaps people’s longer lifespans and greater willingness to take on debt have changed the market permanently. Perhaps.

9. Some of the World’s Most Trusted Economic Sources Are Worried
“Because they said so” is not a good reason to believe anything, but it is telling to see who’s worried about a housing bubble in Canada. Here’s a quick rundown of the people and institutions that are saying a day of reckoning is approaching for Canada’s housing markets.

Goldman Sachs has warned of a “large correction” in Canada’s housing market, due to what it sees as overbuilding of housing units.

Renowned U.S economist Robert Shiller fears Canada is experiencing the U.S.’s housing bubble burst but in “slow motion.”

Nobel prize-winning economist Paul Krugman thinks Canadians have taken on way too much debt, and a “deleveraging shock” is likely in the cards.

The Economist magazine calls Canada’s housing markets among the “bubbliest” in the world, noting that house prices are way above normal levels compared to rent and income.

The Organization for Economic Cooperation and Development (OECD) says Canada has the third-most overvalued housing market in the world, and is part of a group of countries “most vulnerable to the risk of a price correction.”

U.S. Government Shutdown Driving Canadian Mortgage Rates Lower, For Now

The U.S. government shutdown has had an interesting side effect for Canada: It has held out the promise of lower mortgage rates, and therefore a stronger housing market.

Not that the housing market needs much help these days. Housing starts jumped 5.3 per cent in September, according to data released Tuesday by Canada Mortgage and Housing Corp., beating analysts’ estimates. All parts of the country saw rising starts except Ontario, where they fell 15.6 per cent.

September house sales in the two most closely-watched markets, Toronto and Vancouver, are up 30 per cent and 63.8 per cent respectively, according to those cities’ real estate boards (though there is reason to doubt those numbers).

But the housing market could see even more heating, thanks to the U.S. shutdown. That’s because, with the economic uncertainty, investors are flocking to bonds, driving down bond yields. Fixed-rate mortgage rates are tied to bond yields, somortgage rates are going to come down as a result, according to RateSupermarket’s mortgage outlook panel.

Of course the flipside of lower mortgage rates is higher house prices, and Canadian municipal leaders are getting worried about the erosion of affordability, the National Post reports.

In a letter to Prime Minister Stephen Harper, Claude Dauphn, president of the Federation of Canadian Municipalities, urged the federal government to help address the shrinking supply of affordable housing.

“Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” Dauphin wrote.

But all bets are off if the gridlock in the U.S. Congress extends past the debt ceiling deadline on Oct. 17.

If the U.S. were to suddenly default on its debt, it would “devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression,” Bloomberg reports, citing dozens of experts.

So the good news for mortgages could be short-lived indeed.

TROUBLE IN TORONTO CONDOS?
The Toronto Star reports that some buyers of pre-construction condos are struggling to get financing to close their deals.

“Some have had to walk away from deposits worth tens of thousands of dollars. Others have been forced to borrow from family — or against their principal residence — to come up with final payments on condos that lenders are no longer keen to finance,” the newspaper reports.

It’s not just a question of lenders being more cautious in today’s housing market; tighter mortgage rules brought in by the federal government last year mean many who bought condos two or three years ago now have to make larger down payments than they bargained for, the Star reports.

“This is the hardest environment I’ve seen for borrowing money in the last 10 years,” Toronto condo developer Brad Lamb told the newspaper.

Alternative Mortgage Lenders Get Boost From Canada’s Resilient Housing Market

Shares in three of Canada’s biggest alternative mortgage lenders look set to rise over the next year due to the ongoing resiliency of the country’s housing market.

“Alt-A lenders should continue to see enviable growth,” said Shubha Khan, an analyst at National Bank Financial. “We believe that near-term housing market risks have moderated, particularly in view of more dovish comments on interest rate policy from the Bank of Canada.”

Mr. Khan said credit quality also remains sound with mortgage delinquency rates near historical lows. He increased his price targets on Equitable Trust Inc., MCAN Mortgage Corp. and Home Capital Group Inc. and reaffirmed his outperform rating on all three names.

Equitable Trust can be expected to rise 30% over the next 12 months to $64, while MCAN will jump 22% to $16 over the same period, he said.

Home Capital Group, meanwhile, is set to climb as high as $95 – a 17% gain – after reporting solid third-quarter earnings on Wednesday after market close.

The company, down about 2% in trading on Thursday — the same day Finance Minister Jim Flaherty reinterated that rates will eventually rise — reported earnings per share of $1.90 on net income of $66.4 million compared to EPS of $1.65 on net income of $57.3-million a year ago.

“Home continues to post record earnings, with no signs of house price weakness evident in its results,” Michael Goldberg, a Desjardins Securities analyst, said in a note to clients. “We project continued earnings and dividend growth, now augmented by securitization gains.”

He said the stock’s rollercoaster performance in 2013 has been largely driven by movements in its short position, but expects that position to decline, driving the price up further. He maintained his top pick rating with a new higher target price of $93.50.

GMP analyst Stephen Boland is not so bullish, however, and left his hold rating and $86.50 price target for Home Capital shares unchanged.

“The stock has performed better than we expected entering the quarter which we believe was an anticipation of the strong results and a general sector rotation into financials,” he said. “That said, we have moved our valuation out a year but are not comfortable upgrading at this time due to the valuation.”

Clients Less Willing To Renew Early… For Now

Following historically low lending rates, clients are less likely to opt to renew early, leaving few opportunities for independent brokers to try to entice clients to switch lenders… for now, at least.

“Clients (were) getting 2.79- 2.89 five year mortgages and there is no incentive for clients to jump ship earlier and opt to renew early,” Lee Welbanks of Verico Welbanks Mortgage Group told MortgageBrokerNews.ca. “The banks certainly have the advantage because they can renew four months out and they aren’t charging clients a penalty to renew.”

Nevertheless, clients who signed up for five-year fixed rates five years ago – and whose mortgages are now maturing — will likely look to renew, as rates are lower today than they were when they signed up for the current term.

“The variables rates are in vogue right now and we have high rate fixed rates coming out of maturity and so they’re happy to get in on an early renewal,” Welbanks said.

In many of these cases, clients are usually satisfied to stay with the original lender; leaving few opportunities to entice clients to leave. Though that shouldn’t sway brokers from trying.

“We’re trying to find the deals where the clients need more funds. I have some who like my services but, at the end of the day, clients often opt for the path of least resistance – so they choose to renew with the banks or their current lender even if they have to pay a little more,” Welbanks said. “I think the idea is that we need better incentives in order to switch clients; that may be a cash incentive for the hassle they go through, that may be other products you offer.

“It could be a myriad of things but at the end of the day, we can never stop trying, as long as we are not doing something that acts against the client’s better interests.”

And even if that fails, there is always the knowledge that the future will bring with it a leveler playing field.

“The playing field will be more level in 4.5 years because we won’t see as many early renewals. It’s a brand new deal and they have to play with whatever rates are available,” Welbanks concluded.

How To Beat Banks At Renewal Time

The challenges of the traditionally slow winter season is now being compounded by banks contacting past clients 120 days ahead of renewal – and just out of reach of the brokers’ 90 day rate hold.

“I’m relatively new so I still don’t get those return clients with renewals (and) this time of year in Ottawa it’s slow because people don’t want to move in in December and January,” Nick Bachusky told MortgageBrokerNews.ca. “The banks are getting to the clients first – 120 days out, the managers get an automatic message saying whose renewals are up and then the specialists contact the clients with the best rates. It’s tough for brokers to compete because we can only offer at 90 days out.”

The banks tend to have the rate advantage and it can be difficult to sway a previous bank client to move the mortgage to the brokerage side.

“The banks go on floors: they don’t make revenue on it, they make more on volume (and) if it’s a war on rates, the banks will usually win it,” Bachusky said. “They can go to upper management and get rate matches and clients are more willing to stick with the bank because no new paperwork has to be done and no new rules need to be discussed.”

However, one way to get a leg-up on the competition is to focus on other areas of wealth management and providing customers a more holistic financial services approach.

“For renewals, what we’re finding, is that with our client base we offer more than just mortgage services,” Patrick Briscoe of Mortgage Alliance told MortgageBrokerNews.ca. “We have a little bit more client dedication in the fact that they come to us first to get an opinion on what they should do.”

Briscoe believes it can be difficult to compete on rate but it’s this other services that help keep the client, in many cases.

“We have seen competition from the banks for sure as they compete for rates, but at the same time by offering other services we have been able to maintain the client,” Briscoe said. “We do investment services, life insurance and income tax preparation.”

Perhaps this approach is the best way to stay competitive during this important time of the year.

“It’s nice to have a niche in what we’re doing but we think it’s necessary for brokers to have the same sort of model if they want to remain competitive,” Briscoe said.

Flaherty: House Prices A Worry, But No Mortgage Crackdown For Now

OTTAWA - Finance Minister Jim Flaherty is taking on the responsibility of averting a housing bubble in Canada that could destabilize the economy, adding he will speak to those in the business to try and keep a lid on rising home prices.

With the Bank of Canada essentially taking itself out of the game by signalling interest rates won’t be raised for some time, Flaherty said Monday after meeting with about a dozen economists that it falls on his department to ensure the market is stabilized.

"It does fall to the Department of Finance to do anything if we’re going to do anything because there’s basically no room for the Bank of Canada to move," he said.

"Some of the economists suggested I have some conversations with people in the building industry because what we’re seeing in certain parts of the country (is) a re-acceleration of housing prices. I do speak regularly to people in the business and I’m going to do more of it now."

Flaherty said he has no intention of acting at the moment, but said he was keeping an eye on the market to see if the current uptick in sales and prices is temporary or the beginning of another hot run.

Most economists see the market slowing after the recent resurgence, including the Bank of Canada. But the central bank also cited the “renewed momentum” as one of three domestic risks to the economy in its October monetary policy report.

"This (the resurgence) would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on," the bank said. "Such a correction could have sizable spillover effects to other parts of the economy and to inflation."

The minister has been active in the housing market throughout his tenure, at first easing rules but more recently clamping down as Canadians took on ever-increasing debt levels to buy real estate.

The latest measure, which came in July 2012, was followed by a slump in sales and a slowdown in price gains. But the market began picking up again during the summer, particularly in Toronto and Vancouver, with the average home price hitting a new record high of almost $386,000.

Home prices are not Flaherty’s only worry.

The minister told reporters he remains focused on trying to eliminate as much as possible the price gap between the United States and Canada that one recent report pegged at about 10 per cent.

Flaherty said he has been meeting with CEOs of the country’s major retailers to ask for explanations as to why prices for the same items remain elevated in Canada, adding that he is not altogether persuaded by the answers he has been given.

"There are some companies that look at Canada as a relatively small market that is relative well off, (with a) large middle class, and, ‘Let them pay a little more, and they’ll pay it.’," he said of merchant attitudes.
However, Flaherty said he will wait until the results of a study being conducted by the market research firm Nielsen before deciding if anything needs to be done.

"It becomes an interesting question of what the government can do about that … there are always persuasive techniques that can be used to nudge people in the right direction," he said.

The minister has deployed the approach before.

Earlier this year he personally phoned the Bank of Montreal to “persuade” it to raise its five-year fixed mortgage rate after BMO cut it to 2.99 per cent. Flaherty said he was concerned about a race to the bottom on rates that would trigger unsustainable borrowing.